Product Design and Process Selection

000

Product Design

and Process Selection

3

53

Product Design 55

The Product Design Process 56

Links to Practice: IBM Corporation 57 Factors Impacting Product Design 61 Process Selection 64

Designing Processes 68

Process Performance Metrics 71

Linking Product Design and Process Selection 73

Links to Practice: The Babcock & Wilcox Company 75

Technology Decisions 78

Links to Practice: Using GPS Technology in Product Advertising 79

Links to Practice: Performing Robotic Surgery 81

Designing Services 83

OM Across the Organization 88 Inside OM 88

Case: Biddy’s Bakery (BB) 94

Case: Creature Care Animal Clinic (B) 94

Before studying this chapter you should know or, if necessary, review

1. Differences between manufacturing and service organizations, Chapter 1, pp. 5–7. 2. Differences between strategic and tactical decisions, Chapter 1, pp. 00–00. 3. Competitive priorities, Chapter 2, pp. 36–39.

Product Design

and Process Selection

LEARNING OBJECTIVES CHAPTER OUTLINE

C H A P T E R

After completing this chapter you should be able to

Define product design and explain its strategic impact on the organization. Describe the steps used to develop a product design.

Use break-even analysis as a tool in deciding between alternative products. Identify different types of processes and explain their characteristics. Understand how to use a process flowchart.

Understand how to use process performance metrics.

Understand issues of designing service 8 e operations. 7 6 5 4 3 2 1

54 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

H

friends and decided to order pizzas?

One person wants pizza from Pizza Hut because he likes the taste of stuffed-crust pizza

made with cheese in the crust. Someone else wants Donatos pizza because she likes the unique crispy-thin crust. A third wants pizza from Spagio’s because of the woodgrilled oven taste. Even a simple product

like a pizza can have different features unique to its producer. Different customers have different tastes, preferences, and product needs. The variety of product designs

on the market appeal to the preferences of a particular customer group. Also, the different product designs have different processing requirements. This is what product design and process selection are all about. We can all relate to the product design of a pizza just from everyday life.Now consider the complexities involved in designing more sophisticated products. For example, Palm,

Inc. (www.palm.com) is a leading provider of handheld computers whose slogan is “different people, different needs, different handhelds.” The company designs different products with differing capabilities, such as personal information management, wireless Internet access, and games, intended for different types of customers. The company also has to decide on the best process to produce the different types of handhelds.

The challenge of product design can also be illustrated by an example of the Alza Corporation. Alza is a leader in designing new ways that pharmaceutical drugs can be administered to different types of patients. One of their product designs is an under the skin implant for pharmaceutical drugs that previously could only be administered by injection. The product design had to include time release of the drug, as well as the best material and shape of the implant. In addition to the product design, a process had to be designed to produce the unique product.

These examples illustrate that a product design that meets customer needs, although challenging, can have a large impact on a company’s success. In fact, product design is so important that leading edge companies routinely invest in product

designs well into the future. For example, Daimler Chrysler has been conducting research to design intelligent technologies for their vehicles that would have pedestrian

and street sign recognition systems. This type of innovative product design can give a company a significant competitive advantage.

PRODUCT DESIGN • 55

In this chapter we will learn about product design, which is the process of deciding on the unique characteristics and features of the company’s product. We will also learn

about process selection, which is the development of the process necessary to produce the designed product. Product design and process selection decisions are typically made together. A company can have a highly innovative design for its product, but if it has not determined how to make the product in a cost effective way, the product will stay a design forever.

Product design and process selection affect product quality, product cost, and customer satisfaction. If the product is not well designed or if the manufacturing process

is not true to the product design, the quality of the product may suffer. Further, the product has to be manufactured using materials, equipment, and labor skills that are efficient and affordable; otherwise, its cost will be too high for the market.We call this the product’s manufacturability—the ease with which the product can be made. Finally, if a product is to achieve customer satisfaction, it must have the combined characteristics of good design, competitive pricing, and the ability to fill a market need.

This is true whether the product is pizzas or cars.

Most of us might think that the design of a product is not that interesting. After all, it probably involves materials, measurements, dimensions, and blueprints. When we think of design we usually think of car design or computer design and envision engineers working on diagrams. However product design is much more than that.

Product design brings together marketing analysts, art directors, sales forecasters, engineers, finance experts, and other members of a company to think and plan strategically. It is exciting and creative, and it can spell success or disaster for a company.

Product design is the process of defining all the features and characteristics of just about anything you can think of, from Starbuck’s cafe latte or Jimmy Dean’s sausage to GM’s Saturn or HP’s DeskJet printer. Product design also includes the design of services, such as those provided by Salazar’s Beauty Salon, La Petite Academy Day Care Center, or FedEx. Consumers respond to a product’s appearance, color, texture, performance. All of its features, summed up, are the product’s design. Someone came up with the idea of what this product will look like, taste like, or feel like so that it will appeal to you. This is the purpose of product design. Product design defines a product’s characteristics, such as its appearance, the materials it is made of, its dimensions

and tolerances, and its performance standards.

Design of Services Versus Goods

The design elements discussed are typical of industries such as manufacturing and retail in which the product is tangible. For service industries, where the product is

intangible, the design elements are equally important, but they have an added dimension.

Service design is unique in that we are designing both the service and the entire service concept. As with a tangible product, the service concept is based on meeting customer needs. The service design, however, adds the esthetic and psychological benefits of the product. These are the service elements of the operation, such as

prompt-PRODUCT DESIGN

Marketing, Finance

The Sony Clié is one of the latest product designs in handheld computer devices that combine portability, power, and features.

_ Product design

The process of defining all of the product’s characteristics.

_ Manufacturability The ease with which a product can be made.

56 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

ness and friendliness. They also include the ambiance, image, and “feel-good” elements of the service. Consider the differences in service design of a company like

Canyon Ranch, which provides a pampering retreat for health-conscious but overworked professionals, versus Gold’s Gym, which caters to young athletes. As with a

tangible product, the preference for a service is based on its product design. Service

design defines the characteristics of a service, such as its physical elements, and the

esthetic and psychological benefits it provides.

_ Service design

The process of establishing all the characteristics of the service, including physical, sensual, and psychological benefits.

Certain steps are common in the development of most product designs. They are idea generation, product screening, preliminary design and testing, and final design. These steps are shown in Figure 3-1. Notice that the arrows show a circular process. Product designs are never finished, but are always updated with new ideas. Let’s look at these steps in more detail.

Idea Development

All product designs begin with an idea. The idea might come from a product manager who spends time with customers and has a sense of what customers want, from an engineer with a flare for inventions, or from anyone else in the company. To remain competitive, companies must be innovative and bring out new products regularly. In some industries, the cycle of new product development is predictable. We see this in the auto industry, where new car models come out every year, or the retail industry, where new fashion is designed for every season.

In other industries, new product releases are less predictable but just as important. The Body Shop, retailer of plant-based skin care products, periodically comes up with new ideas for its product lines. The timing often has to do with the market for a product, and whether sales are declining or continuing to grow.

Ideas from Customers, Competitors, and Suppliers The first source of ideas are customers, the driving force in the design of goods and services. Marketing is a vital

THE PRODUCT DESIGN PROCESS

Idea Development Product idea developed; Sources can be customers, competitors, or suppliers Product Screening Product idea evaluated; Need to consider operations, marketing, and financial requirements Preliminary

Design & Testing Product prototypes built, tested, and refined Final Design Final product specifications completed FIGURE 3-1

Steps in the product design process

THE PRODUCT DESIGN PROCESS • 57

link between customers and product design. Market researchers collect customer information by studying customer buying patterns and using tools such as customer

surveys and focus groups.Management may love an idea, but if market analysis shows that customers do not like it, the idea is not viable. Analyzing customer preferences is an ongoing process. Customer preferences next year may be quite different from what they are today. For this reason, the related process of forecasting future consumer preferences is important, though difficult.

Competitors are another source of ideas. A company learns by observing its competitors’ products and their success rate. This includes looking at product design,

pricing strategy, and other aspects of the operation. Studying the practices of companies considered “best in class” and comparing the performance of our company

against theirs is called benchmarking. We can benchmark against a company in a completely different line of business and still learn from some aspect of that company’s operation. For example, Lands’ End is well known for its successful catalog

business, and companies considering catalog sales often benchmark against Lands’ End. Similarly, American Express is a company known for its success at resolving complaints, and it, too, is used for benchmarking.

The importance of benchmarking can be seen

by the efforts taken by IBM to improve its distribution system. In 1997 IBM found its distribution

costs increasing, while customers

were expecting decreasing cycle times from factory to delivery. It appeared that IBM’s supply chain practices were not keeping up with those of its competitors. To evaluate and solve this problem IBM hired Mercer Management Consultants, who performed a large

benchmarking study. IBM’s practices were compared to those of market leaders in the personal computer (PC) industry, as well as

to the best logistics practices outside the technology area. The objective was to evaluate

IBM’s current performance, that of companies considered best-in-class, and identify the

gaps. Through the study, IBM discovered which specific costs exceeded industry benchmarks and which parts of the cycle time were excessively long. It also uncovered ways to simplify and reorganize its processes to gain efficiency. Based on findings from the benchmarking effort, IBM made changes in its operations. The results were reduced costs, improved delivery, and improved relationships with suppliers. IBM found benchmarking so beneficial that it plans to perform similar types of studies on an ongoing basis in the future.

Reverse Engineering Another way of using competitors’ ideas is to buy a competitor’s new product and study its design features. Using a process called reverse engineering, a company’s engineers carefully disassemble the product and analyze its

parts and features. This approach was used by the Ford Motor Company to design its Taurus model. Ford engineers disassembled and studied many other car models, such as BMW and Toyota, and adapted and combined their best features. Product design

Marketing

LINKS TO PRACTICE

www.ibm.com

_ Benchmarking

The process of studying the practices of companies considered “best in class” and comparing your company’s performance against theirs.

_ Reverse engineering The process of disassembling a product to analyze its design features.

58 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

ideas are also generated by a company’s R & D (research and development) department, whose role is to develop product and process innovation.

Suppliers are another source of product design ideas. To remain competitive more companies are developing partnering relationships with their suppliers, to jointly satisfy the end customer. For example, Daimler Chrysler chooses its suppliers well before parts are designed. Suppliers participate in a program called

early supplier involvement (ESI) where suppliers are involved in the early stages of

product design.

Product Screening

After a product idea has been developed it is evaluated to determine its likelihood of success. This is called product screening. The company’s product screening team evaluates the product design idea according to the needs of the major business functions.

In their evaluation, executives from each function area may explore issues such as the following:

•

how do they match our existing resources? Will we need new facilities and equipment? Do we have the labor skills to make the product? Can the material for production be readily obtained?

•

How much effort will be needed to develop a market for the product and what is the long-term product potential?

•

other. What is the proposed new product’s financial potential, cost, and return on investment?

Unfortunately, there is no magic formula for deciding whether or not to pursue a particular product idea.Managerial skill and experience, however, are key. Companies generate new product ideas all the time, whether for a new brand of cereal or a new design for a car door. Approximately 80 percent of ideas do not make it past the screening stage. Management analyzes operations, marketing, and financial factors, and then makes the final decision. Fortunately, we have decision-making tools to help us evaluate new product ideas. A popular one is break-even analysis, which we look at next.

Break-Even Analysis: A Tool for Product Screening Break-even analysis is a

technique that can be useful when evaluating a new product. This technique computes the quantity of goods a company needs to sell just to cover its costs, or break

even, called the “break-even” point. When evaluating an idea for a new product it is helpful to compute its break-even quantity. An assessment can then be made as to how difficult or easy it will be to cover costs and make a profit. A product with a break-even quantity that is hard to attain might not be a good product choice to pursue. Next we look at how to compute the break-even quantity.

The total cost of producing a product or service is the sum of its fixed and variable costs. A company incurs fixed costs regardless of how much it produces. Fixed costs include overhead, taxes, and insurance. For example, a company must pay for overhead even if it produces nothing. Variable costs, on the other hand, are costs that

vary directly with the amount of units produced, and include items such as direct

_ Early supplier involvement (ESI) Involving suppliers in the early stages of product design.

_ Break-even analysis A technique used to compute the amount of goods a company would need to sell to cover its costs.

_ Fixed costs

Costs a company incurs regardless of how much it produces.

_ Variable costs

Costs that vary directly with the amount of units produced.

Marketing, Finance

THE PRODUCT DESIGN PROCESS • 59

materials and labor. Together, fixed and variable costs add up to total cost: Total cost _ F _ (VC) Q

where F _ fixed cost VC _ variable cost per unit Q _ number of units sold

Figure 3-2 shows a graphical representation of these costs as well as the break-even quantity. Fixed cost is represented by a horizontal line as this cost is the same regardless of how much is produced. Adding variable cost to fixed cost creates total cost, represented by the diagonal line above fixed cost.When Q _ 0, total cost is only equal to

fixed cost. As Q increases, total cost increases through the variable cost component. The blue diagonal in the figure is revenue, the amount of money brought in from sales:

Revenue _ (SP) Q

where SP _ selling price per unit

When Q _ 0, revenue is zero. As sales increase, so does revenue. Remember, however, that to cover all costs we have to sell the break-even amount. This is the quantity QBE,

where revenue equals total cost. If we sell below the break-even point we incur a loss, since costs exceed revenue. To make a profit, we have to sell above the break-even point. Since revenue equals total cost at the break-even point, we can use the previous equations to compute the value of the break-even quantity:

Total cost _ total revenue F _ (VC) Q _ (SP) Q

Solving for Q, we get the following equation:

Note that we could also find the break-even point by drawing the graph and finding where the total cost and revenue lines cross.

QBE _

F SP _ VC Loss

Total Revenue Profit

Total Cost

Quantity Fixed Costs Quantity (in units) Dollars ($) QBE

FIGURE 3-2 Graphical approach to break-even analysis

60 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

EXAMPLE 3.1

Computing the

Break-Even

Quantity

Fred Boulder, owner of Sports Feet Manufacturing, is considering whether to produce a new line of footwear. Fred has considered the processing needs for the new product as well as the market potential. He has also estimated that the variable cost for each product manufactured and sold is $9 and

the fixed cost per year is $52,000.

(a) If Fred offers the footwear at a selling price of $25, how many pairs must he sell to break even? (b) If Fred sells 4000 pairs at the $25 price, what will be the contribution to profit?

• Solution

(a) To compute the break-even quantity:

The break-even quantity is 3250 pairs. This is how much Fred would have to sell to cover costs. (b) To compute the contribution to profit with sales of 4000 pairs we can go back to the relationship between cost and revenue:

Profit _ total revenue _ total cost _ (SP) Q _ [F _ (VC) Q]

Profit _ $25 (4000) _ [$52,000 _ $9 (4000)] _ $12,000

The contribution to profit is $12,000 if Fred can sell 4000 pairs from his new line of footwear. _ $52,000 $25 _ $9 _ 3250 pairs Q _ F SP _ VC

Break-even analysis is useful for more than just deciding between different products. It can be used to make other decisions, such as evaluating different processes or deciding whether the company should make or buy a product.

Preliminary Design and Testing

Once a product idea has passed the screening stage, it is time to begin preliminary

design and testing. At this stage, design engineers translate general performance specifications into technical specifications. Prototypes are built and tested. Changes are

made based on test results, and the process of revising, rebuilding a prototype, and testing continues. For service companies this may entail testing the offering on a small scale and working with customers to refine the service offering. Fast-food restaurants are known for this type of testing, where a new menu item may be tested in only one particular geographic area. Product refinement can be time consuming, and there may be a desire on the part of the company to hurry through this phase to rush the product to market. However, rushing creates the risk that all the “bugs” have not been worked out, which can prove very costly.

FACTORS IMPACTING PRODUCT DESIGN • 61

_ Design for manufacture (DFM)

A series of guidelines to follow in order to produce a product easily and profitably.

Final Design

Following extensive design testing the product moves to the final design stage. This is where final product specifications are drawn up. The final specifications are then

translated into specific processing instructions to manufacture the product, which include selecting equipment, outlining jobs that need to be performed, identifying specific materials needed and suppliers that will be used, and all the other aspects of organizing the process of product production.

1. Minimize parts.

2. Design parts for different products. 3. Use modular design.

4. Avoid tools.

5. Simplify operations. TABLE 3-1

Guidelines for DFM

DFM guidelines include the following:

Here are some additional factors that need to be considered during the product design stage.

Design for Manufacture

When we think of product design we generally first think of how to please the customer. However, we also need to consider how easy or difficult it is to manufacture

the product. Otherwise, we might have a great idea that is difficult or too costly to manufacture. Design for manufacture (DFM) is a series of guidelines that we should follow to produce a product easily and profitably. DFM guidelines focus on two issues: 1. Design simplification means reducing the number of parts and features of the product whenever possible. A simpler product is easier to make, costs less, and gives us higher quality.

2. Design standardization refers to the use of common and interchangeable parts. By using interchangeable parts we can make a greater variety of products with less inventory and significantly lower cost and provide greater flexibility. Table 3-1 shows guidelines for DFM.

An example of the benefits of applying these rules is seen in Figure 3-3.We can see the progression in the design of a toolbox using the DFM approach. All of the pictures show a toolbox. However, the first design shown requires 20 parts. Through simplification and use of modular design the number of parts required has been reduced

to 2. It would certainly be much easier to make the product with 2 parts versus 20 parts. This means fewer chances for error, better quality, and lower costs due to shorter assembly time.

FACTORS IMPACTING PRODUCT DESIGN

62 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

_ Product life cycle A series of stages that products pass through in their lifetime, characterized by changing product demands over time.

Product Life Cycle

Another factor in product design is the stage of the life cycle of the product. Most products go through a series of stages of changing product demand called the product

life cycle. There are typically four stages of the product life cycle: introduction,

growth, maturity, and decline. These are shown in Figure 3-4.

Products in the introductory stage are not well defined and neither is their market. Often all the “bugs” have not been worked out and customers are uncertain about the product. In the growth stage, the product takes hold and both product and market

continue to be refined. The third stage is that of maturity, where demand levels off and there are usually no design changes: The product is predictable at this stage and so is its market. Many products, such as toothpaste, can stay in this stage for many years. Finally, there is a decline in demand, because of new technology, better product design, or market saturation.

The first two stages of the life cycle can collectively be called the early stages of the product life cycle because the product is still being improved and refined, and the FIGURE 3-3

Progressive design of a toolbox using DFM Introduction Growth Time Maturity Time Decline

Early Stages of Product Life Cycle

Later Stages of Product Life Cycle

Demand FIGURE 3-4

Stages of the product life cycle

FACTORS IMPACTING PRODUCT DESIGN • 63

market is still in the process of being developed. The last two stages of the life cycle can be referred to as the later stages because here the product and market are both well defined.

Understanding the stages of the product life cycle is important for product design

purposes, such as knowing at which stage to focus on design changes. Also, when considering a new product, the expected length of the life cycle is critical in order to estimate

future profitability relative to the initial investment. The product life cycle can

be quite short for certain products, as seen in the computer industry. For other products it can be extremely long, as in the aircraft industry. A few products, such as paper, pencils, nails, milk, sugar, and flour, do not go through a life cycle. However, almost all products do, and some may spend a long time in one stage.

Concurrent Engineering

Concurrent engineering is an approach that brings many people together in the early

phase of product design in order to simultaneously design the product and the process. This type of approach has been found to achieve a smooth transition from the design stage to actual production in a shorter amount of development time with improved quality results.

The old approach to product and process design was to first have the designers of the idea come up with the exact product characteristics. Once their design was complete they would pass it on to operations who would then design the production

process needed to produce the product. This was called the “over-the-wall” approach, because the designers would throw their design “over-the-wall” to operations who then had to decide how to produce the product.

There are many problems with the old approach. First, it is very inefficient and costly. For example, there may be certain aspects of the product that are not critical for product success but are costly or difficult to manufacture, such as a dye color that is difficult to achieve. Since manufacturing does not understand which features are not critical, it may develop an unnecessarily costly production process with costs passed down to the customers. Because the designers do not know the cost of the added feature, they may not have the opportunity to change their design or may do so much later in the process, incurring additional costs. Concurrent engineering allows everyone to work together so these problems do not occur. Figure 3-5 shows the difference

between the “over-the-wall” approach and concurrent engineering.

A second problem is that the “over-the-wall” approach takes a longer amount of time than when product and process design are performed concurrently. As you can see in Figure 3-5, when product and process design are made together much of the

work is done in parallel rather than in sequence. In today’s markets, new product introductions are expected to occur faster than ever. Companies do not have the luxury

of enough time to follow a sequential approach and then work the “bugs” out. They may eventually get a great product, but by then the market may not be there! The third problem is that the old approach does not create a team atmosphere, which is important in today’s work environment. Rather, it creates an atmosphere where each function views its role separately in a type of “us versus them” mentality. With the old approach, when the designers were finished with the designs, they considered their job done. If there were problems, each group blamed the other. With

concurrent engineering the team is responsible for designing and getting the product to market. Team members continue working together to resolve problems with the product and improve the process.

_ Concurrent engineering An approach that brings together multifunction teams in the early phase of product design in order to

simultaneously design the product and the process.

Marketing, Engineering

64 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

Remanufacturing

Remanufacturing is a concept that has been gaining increasing importance, as our society becomes more environmentally conscious and focuses on efforts such as recycling and eliminating waste. Remanufacturing uses components of old products in

the production of new ones. In addition to the environmental benefits, there are significant cost benefits because remanufactured products can be half the price of their

new counterparts. Remanufacturing has been quite popular in the production of computers, televisions, and automobiles.

Product concept Performance specs Design specs Manufacturing specs Customers Marketing personnel Manufacturing engineer Design engineer Production personnel

(a) Sequential design: Walls between functional areas (b) Concurrent design: Walls broken down

Design team

FIGURE 3-5 The first illustration shows sequential design with walls between functional areas. The second illustration shows

concurrent design with walls broken down.

_ Remanufacturing The concept of using components of old products in the production of new ones.

So far we have discussed issues involved in product design. Though product design is important for a company, it cannot be considered separately from the selection of the process. In this section we will look at issues involved in process design. Then we will show how product design and process selection issues are linked together.

Types of Processes

When you look at different types of companies, ranging from a small coffee shop to IBM, it may seem like there are hundreds of different types of processes. Some locations are small, like your local Starbuck’s, and some are very large, like a Ford Motor

Company plant. Some produce standardized “off-the-shelf ” products, like Pepperidge Farm’s frozen chocolate cake, and some work with customers to customize their product, like a gourmet bakery that makes cakes to order. Though there seem to be large

differences between the processes of companies, many companies have certain

PROCESS SELECTION

PROCESS SELECTION • 65

processing characteristics in common. In this section we will divide these processes into groups with similar characteristics, allowing us to understand problems inherent with each type of process.

All processes can be grouped into two broad categories: intermittent operations and repetitive operations. These two categories differ in almost every way. Once we understand these differences we can easily identify organizations based on the category of process they use.

Intermittent Operations Intermittent operations are used to produce a variety of

products with different processing requirements in lower volumes. Examples are an auto body shop, a tool and die shop, or a health-care facility. Because different products have different processing needs, there is no standard route that all products take

through the facility. Instead, resources are grouped by function and the product is routed to each resource as needed. Think about a health-care facility. Each patient, “the product,” is routed to different departments as needed. One patient may need to get an X ray, go to the lab for blood work, and then go to the examining room. Another patient may need to go to the examining room and then to physical therapy.

To be able to produce products with different processing requirements, intermittent operations tend to be labor intensive rather than capital intensive.Workers need to be able to perform different tasks depending on the processing needs of the products produced. Often we see skilled and semiskilled workers in this environment with a fair amount of worker discretion in performing their jobs.Workers need to be flexible and able to perform different tasks as needed for the different products that are

being produced. Equipment in this type of environment is more general purpose to satisfy different processing requirements. Automation tends to be less common, because automation is typically product specific. Given that many products are being

produced with different processing requirements, it is usually not cost efficient to invest in automation for only one product type. Finally, the volume of goods produced

is directly tied to the number of customer orders.

Repetitive Operations Repetitive operations are used to produce one or a few standardized

products in high volume. Examples are a typical assembly line, cafeteria, or

automatic car wash. Resources are organized in a line flow to efficiently accommodate production of the product. Note that in this environment it is possible to arrange resources

in a line because there is only one type of product. This is directly the opposite of what we find with intermittent operations.

To efficiently produce a large volume of one type of product these operations tend to be capital intensive rather than labor intensive. An example is “mass production” operations, which usually have much invested in their facilities and equipment to provide a high degree of product consistency. Often these facilities rely on automation

and technology to improve efficiency and increase output rather than on labor skill. The volume produced is usually based on a forecast of future demands rather than on direct customer orders.

The most common differences between intermittent and repetitive operations relate to two dimensions: (1) the amount of product volume produced, and (2) the degree of product standardization. Product volume can range from making a single unique product one at a time to producing a large number of products at the same time. Product standardization refers to a lack of variety in a particular product. Examples of standardized products are Fruit of the Loom white undershirts, calculators,

_ Intermittent operations Processes used to produce a variety of products with different processing requirements in lower volumes.

_ Repetitive operations Processes used to produce one or a few standardized products in high volume.

66 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

_ Project process A type of process used to make a one-at-a-time product exactly to customer specifications.

_ Batch process A type of process used to produce a small quantity of products in groups or batches based on customer orders or specifications.

toasters, and television sets. The type of operation used, including equipment and labor, is quite different if a company produces one product at a time to customer

specifications instead of mass production of one standardized product. Specific differences between intermittent and repetitive operations are shown in Table 3-2.

The Continuum of Process Types Dividing processes into two fundamental categories of operations is helpful in our understanding of their general characteristics. To

be more detailed, we can further divide each category according to product volume and degree of product standardization as follows. Intermittent operations can be divided into project processes and batch processes. Repetitive operations can be divided into line processes and continuous processes. Figure 3-6 shows a continuum of process types. Next we look at what makes these processes different from each other.

•

specifications. These processes are used when there is high customization and low product volume, because each product is different. Examples can be seen in construction, shipbuilding, medical procedures, creation of artwork, custom tailoring, and interior design. With project processes the customer is usually involved

in deciding on the design of the product. The artistic baker you hired to bake a wedding cake to your specifications uses a project process.

•

batches based on customer orders or product specifications. They are also known as job shops. The volumes of each product produced are still small and Product variety Great Small

Degree of standardization Low High

Organization of resources Grouped by function Line flow to accommodate processing

needs

Path of products through In a varied pattern, Line flow facility depending on product

needs

Factor driving production Customer orders Forecast of future demands

Critical resource Labor-intensive Capital-intensive operation (worker skills operation (equipment important) automation, technology

important)

Type of equipment General purpose Specialized Degree of automation Low High

Throughput time Longer Shorter Work-in-process More Less inventory

TABLE 3-2 Differences between Intermittent and Repetitive Operations

Intermittent Repetitive

Decision Operations Operations

PROCESS SELECTION • 67

there can still be a high degree of customization. Examples can be seen in bakeries, education, and printing shops. The classes you are taking at the university

use a batch process.

•

for mass production. They are also known as flow shops, flow lines, or assembly lines.With line processes the product that is produced is made in high volume with little or no customization. Think of a typical assembly line that produces everything from cars, computers, television sets, shoes, candy bars, even food items.

Designing a custom-made cake is an example of an intermittent operation.

An assembly line is an example of a repetitive operation. 1. Project Process

(Custom job shop; Customer tailoring; Construction) Low Low High High 2. Batch Process (Education classes; Bakery; Printing shop) 3. Line Processes (Assembly lines; Cafeteria) 4. Continuous Processes (Oil Refinery; Water treatment plant)

INTERMITTENT OPERATIONS REPETITIVE OPERATIONS Product Volume Product Standardization FIGURE 3-6

Types of processes based on product volume and product standardization

Source: Adapted from Robert H. Hayes and Steven C. Wheelwright, “Link Manufacturing Process and Product Life Cycles,” Harvard Business Review, January-February, 1979, pp. 133–140.

_ Line process

A type of process used to produce a large volume of a standardized product.

_ Process flow analysis A technique used for evaluating a process in terms of the sequence of steps from inputs to outputs with the goal of improving its design.

_ Process flowchart A chart showing the sequence of steps in producing the product or service.

68 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

•

fully standardized product. Examples include oil refineries, water treatment plants, and certain paint facilities. The products produced by continuous processes are usually in continual rather than discrete units, such as liquid or gas. They usually have a single input and a limited number of outputs. Also, these facilities are usually highly capital intensive and automated.

Note that both project and batch processes have low product volumes and offer customization. The difference is in the volume and degree of customization. Project processes are more extreme cases of intermittent operations compared to batch processes. Also, note that both line and continuous processes primarily produce large volumes of standardized products. Again, the difference is in the volume and degree of standardization. Continuous processes are more extreme cases of high volume and product standardization than are line processes.

Figure 3-6 positions these four process types along the diagonal to show the best process strategies relative to product volume and product customization. Companies whose process strategies do not fall along this diagonal may not have made the best process decisions. Bear in mind, however, that not all companies fit into only one of these categories: a company may use both batch and project processing to good advantage. For example, a bakery that produces breads, cakes, and pastries in batch may

also bake and decorate cakes to order.

Now that we know about different types of processes, let’s look at a technique that can help with process design.

Process flow analysis is a technique used for evaluating a process in terms of the

sequence of steps from inputs to outputs with the goal of improving its design. One of the most important tools in process flow analysis is a process flowchart. A process

and the flow of the product through the process. It is useful for seeing the totality of the operation and for identifying potential problem areas.

There is no exact format for designing a flowchart. The flowchart can be very simple or highly detailed. The typical symbols used in a flowchart are arrows to represent flows, triangles to represent decision points, inverted triangles to represent storage of goods, and rectangles as tasks. Let’s begin by looking at some elements used in developing a flowchart, as shown in Figure 3-7. Shown first, in Figure 3-7(a), are flows

between stages in a simple multistage process, which is a process with multiple activities (“stages”). You can see that the arrows indicate a simple flow of materials between the different stages.

Often multiple stages have storage areas or “buffers” between them for placement of either partially completed (work-in-process) or fully completed (finished goods) inventory, shown in Figure 3-7(b). This enables the two stages to operate independently of each other. Otherwise, the first stage would have to produce a product at the same exact rate as the second stage. For example, let’s say that the first stage of a multistage process produces one product in 40 seconds and the second stage in 60 seconds. That means that for every unit produced the first stage

would have to stop and wait 20 seconds for the second stage to finish its work. Because the capacity of the second stage is holding up the speed of the process, it is

DESIGNING PROCESSES

_ Continuous process A type of process that operates continually to produce a high volume of a fully standardized product. DESIGNING PROCESSES • 69

called a bottleneck. Now let’s see what happens if the first stage takes 60 seconds to produce a product and the second stage 40 seconds. In this case the first stage becomes the bottleneck, and the second stage has to wait 20 seconds to receive a product. Obviously the best is for both stages to produce at the same rate, though this is often not possible. Inventory is then placed between the stages to even out differences in production capacity.

Often stages in the production process can be performed in parallel, as shown in Figure 3-7(c) and (d). The two stages can produce different products (c) or the same product (d). Notice that in the latter case this would mean that the capacity of the stage performed in parallel has effectively been doubled.

Now let’s look at an illustration of a flowchart using Antonio’s Pizzeria as an example. Let’s say that Antonio produces three different styles of pizzas to satisfy different types of customers. The first are cheese pizzas made with standard ingredients and a Stage 1 Stage 2 Stage 3

Stage 1 Stage 2 (a) Multistage process

(b) Multistage process with buffers Stage 1

(c) Parallel stages producing different products Stage 2

Stage 1

(d) Parallel stages producing the same product Stage 2 Finished goods #1 Finished goods #2 Finished goods Work-in-process

inventory FIGURE 3-7

Elements of flowchart development

_ Bottleneck

Longest task in the process.

70 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

standard crust. They are the most popular items and Antonio makes them ahead of time to ensure that they are always available upon demand. This is called a

maketo-stock strategy. The second are pizzas that use a standard crust prepared ahead of

time, but are assembled based on specific customer requests. This is called an

assemble-to-order strategy. Lastly are pizzas made-to-order based on specific customer

requirements, allowing choices of different types of crusts and toppings. This is called a make-to-order strategy.We will look at these product strategies more closely later in this chapter. For now, let’s look at the flowcharts for the three processes in

Figure 3-8. Notice that although the flowcharts are similar, they show customer interaction at different points in the processes.

Process flowcharts can also be used to map the flow of the customer through the process and to identify potential problem areas. Figure 3-9 shows a flowchart for Antonio’s Pizzeria that includes the steps involved in placing and processing a customer order. The points in the process for potential problems are indicated. Management can then monitor these problem areas. The chart could be even more detailed, including information such as frequency of errors or approximate time to complete a

task. As you can see, process flowcharts are very useful tools when designing and evaluating processes. Make Dough Prepare Crust Assemble Pizza Bake Assemble Pizzas Bake Delivery Customer Order Finished goods inventory “pizza”

(a) Make-to-stock strategy Make Dough Prepare Crust Delivery Customer Order Work-in-progress inventory of “crust” (b) Assemble-to-order strategy Delivery Assemble Pizza Make Dough Prepare Crust Customer Order (c) Make-to-order strategy Ingredients Ingredients

Ingredients

FIGURE 3-8 Flowcharts for different product strategies at Antonio’s Pizzeria

_ Make-to-stock strategy Produces standard products and services for immediate sale or delivery.

_ Assemble-to-order strategy

Produces standard components that can be combined to customer specifications.

_ Make-to-order strategy Produces products to customer specifications after an order has been received.

PROCESS PERFORMANCE METRICS • 71

Lost Sale Lost Sale Lost Sale FIGURE 3-9

Process flowchart of customer flow at Antonio’s Pizzeria

An important way of ensuring that a process is functioning properly is to regularly measure its performance. Process performance metrics are measurements of different process characteristics that tell us how a process is performing. Just as accountants and finance managers use financial metrics, operations managers use process performance metrics to determine how a process is performing and how it is changing over

time. There are many process performance metrics that focus on different aspects of

PROCESS PERFORMANCE METRICS

_ Process performance metrics

Measurements of different process characteristics that tell how a process is performing.

72 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

the process. In this section we will look at some common metrics used by operations managers. These are summarized in Table 3-3.

A basic process performance metric is throughput time, which is the average amount of time it takes a product to move through the system. This includes the time someone is working on the product as well as the waiting time. A lower throughput time means that more products can move through the system. One goal of process improvement is to reduce throughput time. For example, think about the time spent at your last doctor’s appointment. The total amount of time you spent at the facility, regardless of whether you were waiting, talking with the physician, or having lab work performed, is throughput time.

Quite possibly much of the time at your last doctor’s appointment was spent waiting. An important metric that measures how much wasted time exists in a process is

process velocity. Process velocity is computed as a ratio of throughput time to valueadded

time:

where value-added time is the time spent actually working on the product. Notice that the closer this ratio is to 1.00, the lower the amount of time the product spends on nonvalue adding activities (e.g., waiting). Again recall your last doctor’s appointment.

What was the value-added time? What was the throughput time? Can you estimate the process velocity?

Another important metric is productivity, which is the ratio of outputs over inputs. Productivity measures how well a company converts its inputs to outputs. Productivity was discussed in detail in Chapter 2, so we will not repeat its computation

here. Also important is utilization, which is the ratio of the time a resource is actually used versus the time it is available for use. Unlike productivity, which tends to focus on financial measures (e.g., dollars of output), utilization measures the actual time that a resource (e.g., equipment or labor) is being used. Last, efficiency is a metric that measures actual output relative to some standard of output. It tells us whether we are performing at, above, or below standard.

Process velocity _ Throughput time Value-added time

_ Throughput time Average amount of time it takes a product to move through the system.

_ Process velocity Ratio of throughput time to value-added time.

_ Productivity

Ratio of outputs over inputs.

_ Utilization

Ratio of time a resource is used to time it is available for use.

_ Efficiency

Ratio of actual output to standard output.

1. Throughput time Average amount of time product takes to move through the

system.

2. A measure of wasted time in the system.

3. A measure of how well a company uses its resources.

4. The proportion of time a resource is actually used.

5. Measures performance relative to a standard.

Efficiency _ Actual output Standard output Utilization _

Time a resource used Time a resource available Productivity _ Output Input Process velocity _ Throughput time Value-added time TABLE 3-3

Process Performance Metrics

Measure Definition

EXAMPLE 3.2

Measuring

Process

Performance

Frantz Title Company is analyzing its operation in an effort to improve performance. The following data have been collected:

It takes an average of 4 hours to process and close a title, with value-added time estimated at 30 minutes per title;

Each title officer is on payroll for 8 hours per day, though working 6 hours per day on average, accounting for lunches and breaks. Industry standard for labor utilization is 80 percent;

The company closes on 8 titles per day, with an industry standard of 10 titles per day for a comparable facility.

Determine process velocity, labor utilization, and efficiency for the company. Can you draw any conclusions?

• Solution

A process velocity of 8 indicates that the amount of time spent on nonvalue activities is 8 times that of value-added activities. Also, labor utilization and efficiency are both below standard.

Efficiency _ 8 titles/day 10 titles/day _ .80 or 80% Labor utilization _ 6 hours/day 8 hours/day _ .75 or 75% Process Velocity _ Throughput time Value-added time _ 4 hours/title 1 2 hour/title _ 8 Before You Go On

Make sure that you understand the key issues in product design. Be familiar with the different stages of the product life cycle. Recall that products in the early stages of the life cycle are still being refined based on the needs of the market. This includes product characteristics and features. At this stage the market for the product has not yet been fully developed and product volumes have not reached their peak. By contrast, products in the later stages of their life cycle have well-developed characteristics and demand volumes for them are fairly stable.

Review the different types of processes and their characteristics. Recall that intermittent processes are designed to produce products with different processing requirements in smaller volumes. Repetitive operations,

on the other hand, are designed for one or a few types of products produced in high volumes. Next we discuss how product design and process selection decisions are interrelated.

Decisions of product design and process selection are directly linked and cannot be made independently of one another. The type of product a company produces defines the type of operation needed. The type of operation needed, in turn, defines many

other aspects of the organization. This includes how a company competes in the marketplace (competitive priorities), the type or equipment and its arrangement in the

facility, the type of organizational structure, and future types of products that can be

LINKING PRODUCT DESIGN AND PROCESS SELECTION

Marketing

74 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

produced by the facility. Table 3-4 summarizes some key decisions and how they differ for intermittent and repetitive types of operations. Next we look at each of these decision areas.

Intermittent and repetitive operations typically focus on producing products in different stages of the product life cycle. Intermittent operations focus on products in

the early stage of the life cycle because facilities are general purpose and can be adapted to the needs of the product. As products in the early stage of the life cycle are still being refined, intermittent operations are ideally suited for these types of products. Also, demand volumes for these products are still uncertain, and intermittent

operations are designed to focus on producing lower volumes of products with differing characteristics.

Once a product reaches the later stages of the life cycle both its product features and its demand volume are predictable. As volumes are typically larger at this stage, a facility that is dedicated to producing a large volume of one type of product is best from both efficiency and cost perspectives. This is what a repetitive operation provides. Recall that repetitive operations are capital intensive, with much automation

dedicated to the efficient production of one type of product. It would not be a good decision to invest such a large amount of resources for a product that is uncertain relative to its features or market. However, once a product is well defined with a sizable

market, repetitive types of operations are a better business alternative. This is why repetitive operations tend to focus on products in the later stages of their life cycle. The product focus of both types of operations has significant implications for a company’s future product choices. Once a company has an intermittent operation in place, designed to produce a variety of products in low volumes, it is a poor strategic decision to pursue production of a highly standardized product in the same facility. The same holds true for attempting to produce a newly introduced product in a repetitive operation.

The differences between the two types of operations are great, including the way they are managed. Not understanding their differences is a mistake often made by companies. A company may be very successful at managing a repetitive operation that produces a standardized product. Management may then see an opportunity involving products in the early stage of the life cycle. Not understanding the differences in the operational requirements, management may decide to produce this new product by applying their “know-how.” The results can prove disastrous.

Product design Early stage of product life cycle Later stage of product life cycle

Competitive priorities Delivery, flexibility, and quality Cost and quality Facility layout Resources grouped by function Resources arranged in a line

Product strategy Make-to-order/assemble-to-order Make-to-stock Vertical integration Low High

TABLE 3-4 Differences in Key

Organizational Decisions for Different Types of Operations

Intermittent Repetitive

Decision Operations Operations

LINKING PRODUCT DESIGN AND PROCESS SELECTION • 75

The problems that can arise when a company does not understand the differences between intermittent and repetitive operations are illustrated by the experience of The Babcock & Wilcox Company in the late 1960s. B & W was very successful at producing fossil fuel boilers, a standardized product made via repetitive operation.

Then the company decided to

pursue production of nuclear pressure vessels, a new product in the early stages of its life cycle that required an intermittent operation. B & W saw the nuclear pressure vessels as a wave of the future. Because they were successful at producing boilers, they believed they could apply those same skills to production of the new product. They began

managing the production of nuclear pressure vessels—an intermittent operation— as if it were a repetitive operation. They focused primarily on cost rather than delivery, did not give enough time for product refinement, and did not invest in labor skills necessary for a new product. Consequently, the venture failed and the company almost went out of business. It was saved by its success in the production of boilers to which it was able to return.

Competitive Priorities

The decision of how a company will compete in the marketplace—its competitive

priorities—is largely affected by the type of operation it has in place. Intermittent operations are typically less competitive on cost than repetitive operations. The reason is

that repetitive operations mass produce a large volume of one product. The cost of the product is spread over a large volume, allowing the company to offer that product at a comparatively lower price.

Think about the cost difference you would incur if you decided to buy a business suit “off the rack” from your local department store (produced by a repetitive operation) versus having it custom made by a tailor (an intermittent operation). Certainly a custommade suit would cost considerably more. The same product produced by a repetitive

operation typically costs less than one made by an intermittent operation. However, intermittent operations have their own advantages. Having a custom-made suit allows you

to choose precisely what you want in style, color, texture, and fit. Also, if you were not satisfied you could easily return it for adjustments and alterations. Intermittent operations compete more on flexibility and delivery compared to continuous operations.

Today all organizations understand the importance of quality. However, the elements of quality that a company focuses on may be different depending on the type

of operation used. Repetitive operations provide greater consistency between products. The first and last products made in the day are almost identical. Intermittent operations, on the other hand, offer greater variety of features and workmanship not

available with mass production.

It is important that companies understand the competitive priorities best suited for the type of process that they use. It would not be a good strategic decision for an intermittent operation to try to compete primarily on cost, as it would not be very successful. Similarly, the primary competitive priority for a repetitive operation should not be variety of features, because this would take away from the efficiency of the process design.

LINKS TO PRACTICE

The Babcock & Wilcox Company

www.babcock.com

Marketing

76 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

Facility Layout

Facility layout, covered in Chapter 10, is concerned with the arrangement of resources of a facility to enhance the production process. If resources are not arranged properly, a company will have inefficiency and waste. The type of process a company uses directly affects the facility layout of the organization and the inherent problems encountered. Resources of intermittent operations are grouped based on similar processes or functions. There is no one typical product that is produced; rather, a large variety of items are produced in low volumes, each with its own unique processing needs. Since

no one product justifies the dedication of an entire facility, resources are grouped based on their function. Products are then moved from resource to resource, based on their processing needs. The challenge with intermittent operations is to arrange the location of resources to maximize efficiency and minimize waste of movement. If the intermittent operation has not been designed properly, many products will be moved long distances. This type of movement adds nothing to the value of the product and contributes to waste. Any two work centers that have much movement between them should be placed close to one another. However, this often means that another work center will have to be moved out of the way. This can make the problem fairly challenging. Intermittent operations are less efficient and have longer production times due to

the nature of the layout. Material handling costs tend to be high and resource scheduling is a challenge. Intermittent operations are common in practice. Examples include a doctor’s office or a hospital. Departments are grouped based on their function, with examining rooms in one area, lab in another, and X-rays in a third. Patients are moved from one department to another based on their needs. Another example is a bakery that makes custom cakes and pastries. The work centers are set up to perform different functions, such as making different types of dough, different types of

fillings, and different types of icing and decorations. The product is routed to different workstations depending on the product requirements. Some cakes have the filling in the center (e.g., Boston cream pie), others only on top (e.g., sheet cake), and some have no filling at all (e.g., pound cake).

Repetitive operations have resources arranged in sequence to allow for efficient production of a standardized product. Since only one product or a few highly similar products

are being produced, all resources are arranged to efficiently meet production needs. Examples are seen on an assembly line, in a cafeteria, or even a car wash. Numerous products, from breakfast cereals to computers, are made using repetitive operations. Though repetitive operations have faster processing rates, lower material handling

costs, and greater efficiency than intermittent operations, they also have their shortcomings. Resources are highly specialized and the operation is inflexible relative to the

market. This type of operation cannot respond rapidly to changes in market needs for the products wanted or to changes in demand volume. The challenge is to arrange workstations in sequence and designate the jobs that will be performed by each to

produce the product in the most efficient way possible. Figure 3-10 illustrates the differences in facility layout between intermittent and repetitive operation.

Product and Service Strategy

The type of operation a company has in place is directly related to its product and service strategy. As we learned earlier in this chapter in the example of Antonio’s Pizzeria, product and service strategies can be classified as make-to-stock, assemble-to-order, and LINKING PRODUCT DESIGN AND PROCESS SELECTION • 77

make-to-order. These strategies differ by the length of their delivery lead time, which is the amount of time from when the order is received to when the product is delivered. These strategies also differ by the degree of product customization. Figure 3-11 illustrates these differences.

Make-to-stock is a strategy that produces finished products for immediate sale or

delivery, in anticipation of demand. Companies using this strategy produce a standardized product in larger volumes. Typically this strategy is seen in repetitive operations.

Delivery lead time is the shortest, but the customer has no involvement in product design. Examples include off-the-shelf retail apparel, soft drinks, standard

automotive parts, or airline flights. A hamburger patty at a fast-food restaurant such as McDonald’s, Burger King, or Wendy’s is made-to-stock as is a taco at Taco Bell. As a customer you gain speed of delivery, but lose the ability to customize the product. finished

product

(resources grouped by function) (b) Repetitive Operations (resources arranged in sequence) Work station 1 inbound materials Work station 2 Work station 3 Department A Department B Department C Department D Department E Department F FIGURE 3-10

Facility layouts for intermittent versus repetitive operations

Delivery Time

Make-to-Stock Processing Product Inventory

Assembly Shipping Delivery Time

Assemble-to-Order Processing Product Inventory

Assembly Shipping Delivery Time

Make-to-Order Product Processing Inventory

Assembly Shipping FIGURE 3-11

Product and service strategy options

78 • CHAPTER 3 PRODUCT DESIGN AND PROCESS SELECTION

Assemble-to-order strategy, also known as build-to-order, produces standard components that can be combined to customer specifications. Delivery time is longer than

in the make-to-stock strategy, but allows for some customization. Examples include computer systems, pre-fabricated furniture with choices of fabric colors, or vacation packages with standard options.

Make-to-order is a strategy used to produce products to customer specifications after an order has been received. The delivery time is longest and product volumes are low. Examples are custom-made clothing, custom-built homes, and customized professional services. Ordering a hamburger to your liking in a sit-down restaurant is another

example of this strategy. This strategy is best for an intermittent operation.

Degree of Vertical Integration

The larger the number of processes performed by a company in the chain from raw materials to product delivery, the higher the vertical integration.Vertical integration is a strategic decision that should support the future growth direction of the company. Vertical integration is a good strategic option when there are high volumes of a small variety of input materials, as is the case with repetitive operations. The reason is that the high volume and narrow variety of input material allows task specialization and

cost justification. An example is Dole Food Company, which owns and controls most of its canned pineapple production from pineapple farms to the processing plant. The company has chosen to be vertically integrated so as to have greater control of costs and product quality.

It is typically not a good strategic decision to vertically integrate into specialized processes that provide inputs in small volumes. This would be the case for intermittent operations. For example, let’s consider a bakery that makes a variety of different types of cakes and pies. Maybe the bakery purchases different fillings from different sources, such as apple pie filling from one company, chocolate filling from another, and cream filling from a third. If the company were to purchase production of the apple filling, it would not gain much strategically because it still relies on other suppliers. In this case outsourcing may be a better choice. However, if the bakery shifted its production to only making apple pies, then the vertical integration might be a good choice. In summary, vertical integration is typically a better strategic decision for repetitive operations. For intermittent operations it is generally a poor strategic choice.

Advancements in technology have had the greatest impact on process design decisions. Technological advances have enabled companies to produce products faster,

with better quality, at a lower cost. Many processes that were not imaginable only a few years ago have been made possible through the use of technology. In this section we look at some of the greatest impacts technology has had on process design.

Information Technology

Information technology (IT) is technology that enables storage, processing, and

communication of information within and between firms. It is also used to organize information to help managers with decision making. One type of information technology we are all familiar with is the Internet, which has had the greatest impact on

the way companies conduct business. The Internet has linked trading partners— customers, buyers, and suppliers—and has created electronic commerce and the virtual marketplace.

TECHNOLOGY DECISIONS

_ Information technology Technology that enables storage, processing, and communication of information within and between firms.

TECHNOLOGY DECISIONS • 79

Enterprise software is another powerful information technology, such as enterprise

resource planning (ERP). These are large software programs used for planning

and coordinating all resources throughout the entire enterprise. They allow data sharing and communication within and outside of the firm, enabling collaborative decision making.We will learn more about ERP in Chapter 14.

Other examples of IT include wireless communication technologies. We are all familiar with cellular phones and pagers in our own lives. These technologies can also significantly improve business operations. For example, wireless homing devices and wearable computers are being used in warehouses to quickly guide workers to locations of goods.Wireless technologies enhanced by satellite transmission can rapidly transmit information

from one source to another. For example,Wal-Mart uses company-owned satellites to automatically transmit point-of-sale data to computers at replenishment warehouses.

Global positioning systems (GPS) are another type of wireless technology that

uses satellite transmission to communicate exact locations. GPS was originally developed by the Department of Defense in 1978, in order to help coordinate U.S. military operations. Today GPS has numerous business and individual applications. Large trucking companies use GPS technology to identify the exact locations of their